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Exam 11: Investor Losses

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Question 1

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Marcia borrowed $110,000 to acquire a parcel of land to be held for investment purposes and paid interest of $9,000 on the loan.Other items related to Marcia's investments include the following: Marcia is unmarried,has AGI of $65,000,and elects to itemize her deductions.She has no miscellaneous itemized deductions other than the investment counsel fees.

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Question 2

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In 2012,Emily invests $100,000 in a limited partnership that is not a passive activity.During 2012,her share of the partnership loss is $70,000.In 2013,her share of the partnership loss is $50,000.How much can Emily deduct in 2012 and 2013?

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Although the passive loss rules do not a...

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Question 3

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In the current year,Rich has a $40,000 loss from a business he owns.His at-risk amount at the end of the year,prior to considering the current year loss,is $24,000.He will be allowed to deduct the $40,000 loss this year if he is a material participant in the business.

Gail exchanges passive Activity A,which has suspended losses of $15,000,for passive Activity B in a nontaxable exchange.The new owner of passive Activity A can offset the $15,000 suspended losses against passive income in the future.

Kim dies owning a passive activity with a basis of $75,000,a fair market value of $140,000,and suspended losses of $80,000.All of the $80,000 passive loss can be deducted on Kim's final income tax return.

Discuss the treatment given to suspended passive activity losses and credits.What happens to an activity's unused losses and credits when the activity is sold?

Roxanne,who is single,has $125,000 of salary,$10,000 of income from a limited partnership,and a $26,000 passive loss from a real estate rental activity in which she actively participates.Her modified adjusted gross income is $125,000.Of the $26,000 loss,how much is deductible?

Describe the general rules that limit the deduction of investment interest expense.

Skeeter invests in vacant land for the purpose of realizing a profit on its appreciation.He leases the land during the period he holds it.The unadjusted basis of the property is $75,000 and its fair market value is $105,000.The lease payments are $1,200 per year.

In the current year,Kenny has a $35,000 loss from a real estate rental activity.Kenny provides 1,000 hours of service to that activity,which is more than half of his working hours for the year.Kenny can deduct the $35,000 loss.

Joe participates 95 hours in an activity,while an employee participates 5 hours.Joe has materially participated in the activity.

Services performed by an employee are treated as being related to a real estate trade or business if the employee performing the services has more than a 5% ownership interest in the employer.

Investment income can include gross income from interest,dividends,annuities,and royalties not derived in the ordinary course of a trade or business; income from a passive activity; and income from a real estate activity in which the taxpayer actively participates.

Ahmad owns four activities.He participated for 120 hours in Activity A,150 hours in Activity B,140 hours in Activity C,and 100 hours in Activity D.Which of the following statements is correct?

Tonya owns an interest in an activity (not real estate)that converted recourse financing to nonrecourse financing.Recapture of previously allowed losses is required if Tonya's at-risk amount is reduced below zero as a result of the debt restructuring.

Lucy dies owning a passive activity with an adjusted basis of $90,000.Its fair market value at that date is $145,000.Suspended losses relating to the property were $75,000.Which of the following statements is true?

David earned investment income of $20,000,incurred investment interest expense of $12,000,and other investment expenses of $9,000 during the current year.David can deduct $12,000 of investment interest for this year.

Mary Jane participates for 100 hours during the year in an activity she owns.She has no employees and is the only participant in the activity.The activity is a significant participation activity.

Describe the types of activities and taxpayers that are subject to the at-risk rules.

Wolf Corporation has active income of $55,000 and a passive loss of $33,000 in the current year.Wolf cannot deduct the $33,000 loss if it is a closely held C corporation that is not a personal service corporation.